Due to a high non-performing assets level banks remain reluctant to provide loans, and external financing at competitive conditions remains a challenge.

Robust growth drives domestic steel consumption

Government measures to stem steel imports

Non-payments have increased in 2016 and in 2017

In line with India´s robust annual economic growth rates of more than 7%, domestic steel demand is expected to increase further, by 6.1% in 2017 and 7.1% in 2018 after increasing 4.1% in 2016, according to the World Steel Association. Demand is mainly driven by key end-user industries such as construction, capital goods and consumer durables. India is the world’s third-largest steel producer and production increased 5.1% year-on-year between January-August 2017.

In order to stem rising imports and to protect domestic steel producers, the Indian government has implemented a couple of measures in 2015 and 2016 (e.g. increasing the steel import duty and imposing anti-dumping, countervailing duties on various steel products). Those actions have been welcomed by the Indian steel industry, which has previously been affected by sliding net sales, falling profits and, in some cases, rising net losses and an erosion of net worth. The sector was given a further boost by a government steel policy scheme which aims to triple India’s annual steel production to 300 million tons by favouring locally manufactured steel and reducing imports to zero by 2030.

However, some major challenges remain. Capacity utilisation is low, and it is expected that the benefits from domestic demand growth will be offset by limits to raise sales prices due to enduring global steel overcapacity. As the share of stalled projects in the steel and metals industry has risen steadily, outstanding loans have increased, making the sector one of the largest contributors to non-performing assets (NPA) in India. Due to the high NPA level, banks remain reluctant to provide loans to the industry, and external financing at competitive conditions remains a challenge for many steel businesses.

On average, payment periods in the Indian steel and metals industry take between 60 and 90 days. Non-payment notifications have increased in 2016 and H1 of 2017, and therefore our underwriting stance remains restrictive, especially on steel and metals traders and wholesalers.